4220 Exam 4 Final exam
third-country nationals
(TCNs) Employees of a U.S. foreign subsidiary who maintain citizenship in a country other than the United States or the host country. TCNs' compensation is tied to comparative wages in the local country, the United States, or the country of citizenship.
Beyond the typical benefits many executives also receive:
- Additional life insurance. - Exclusions from deductibles for health-related costs. - Supplementary pension income exceeding maximum permissible under ERISA
5 basic elements of most executive compensation packages
- Base salary. - Short-term (annual) incentives or bonuses. - Long-term incentives (for example, stock options and stock grants). - Benefits. - Perquisites
Why would anyone be opposed to a mandated minimum wage or making increases to it?
- Decreased worker demand and/or their hours worked. - Would an increase go primarily to low-income families? - Short-run compliance issues
A major compensation challenge w contingent workers is identifying ways to deal with equity
- One response is to view contingent workers as a pool of future hires. - A second response is to champion the idea of boundary-less careers.
most compensation committees will do what?
- Set CEO compensation at a level between the highest and lowest competitor. - Pay may be higher if a large company or if raiding risk is high
Special groups share two characteristics
- They tend to be strategically important to their company - Their positions tend to have built-in conflict due to incompatible demands
compensation committees
- composed usually of the company's board of directors or subset of the board - important and used when determining executive base pay
clawback provisions
- designed to allow companies to claim compensation from executives in some situations - are available under the Dodd-Frank and have also been adopted in stronger form by some companies
popular strategy to attract new supervisors
- pay a base salary for supervisors 5 to 30% above the pay of the top-paid subordinate in the unit. - pay supervisors for scheduled overtime - increased use in variable pay
compensating sales professionals
- standard compensation is not designed for this type of job - more reliance on incentive payments tied to individual performance
ISS recommends approval of the say on pay vote what percentage of the time?
90%
pay for knowledge plan
A compensation practice whereby employees are paid for the number of different jobs they can adequately perform or the amount of knowledge they possess
balanced scorecard
A corporatewide, overall performance measure typically incorporating financial results, process improvements, customer service, and innovation
Fair Labor Standards Act of 1938 (FLSA)
A federal law governing minimum wage, overtime pay, equal pay for men and women in the same types of jobs, child labor, and record-keeping requirements
job hierarchy
A grouping of jobs based on their job-related similarities and differences and on their value to the organization's objectives.
job classifications (grade)
A grouping of jobs that are considered substantially similar for pay purposes.
VII
A major piece of legislation prohibiting pay discrimination. It is much broader in intent than the Equal Pay Act, forbidding discrimination on the basis of race, color, religion, sex, pregnancy, or national origin
balance sheet approach
A method for compensating expatriates based upon the belief that the employee should not suffer financially for accepting a foreign-based assignment. The expatriate's pay is adjusted so that the amounts of the financial responsibilities the expatriate had prior to the assignment are kept at about the same level while on assignment—the company pays for the difference
tax equalization
A method whereby an expatriate pays neither more nor less tax than the assumed home-country tax on base remuneration
Minimum wage
A minimum-wage level for most Americans established by Congress as part of the Fair Labor Standards Act of 1938
budgeting
A part of the organization's planning process; helps to ensure that future financial expenditures are coordinated and controlled. It involves forecasting the total expenditures required by the pay system during the next period as well as the amount of the pay increases. Bottom up and top down are the two typical approaches to the process
maturity curve
A plot of the empirical relationship between current pay and years since a professional has last received a degree (YSLD), thus allowing organizations to determine a competitive wage level for specific professional employees with varying levels of experience
comparable worth
A policy that women performing jobs judged to be equal on some measure of inherent worth should be paid the same as men, excepting allowable differences, such as seniority, merit, production-based pay plans, and other non-sex-related factors. Objective is to eliminate use of the market in setting wages for jobs held by women
reopener clause
A provision in an employment contract that specifies that wages, and sometimes such nonwage items as pension/benefits, will be renegotiated under certain conditions (changes in cost of living, organization, profitability, and so on)
agency theory
A theory of motivation that depicts exchange relationships in terms of two parties: agents and principals. According to this theory, both sides of the exchange will seek the most favorable exchange possible and will act opportunistically if given a chance. As applied to executive compensation, agency theory would place part of the executive's pay at risk to motivate the executive (agent) to act in the best interests of the shareholders (principals) rather than in the executive's own self-interests
cost of living adjustments
Across-the-board wage and salary increases or supplemental payments based on changes in some index of prices, usually the consumer price index (CPI). If included in a union contract, COLAs are designed to increase wages automatically during the life of the contract as a function of changes in the CPI
hardship premium
Additional financial incentive offered to individuals to entice them to accept a less attractive international assignment
hardship allowance
Additional pay that an expatriate employee may receive for living and working in a potentially dangerous area. For example, if an oil company sends an employee to work a rig in a warzone, he/she likely will receive a hardship allowance in the form of a higher salary
U.S. expatriates (USEs)
American citizens working for a U.S. subsidiary in a foreign country. Main compensation concerns are to "keep the expatriates whole" relative to their U.S.-based counterparts and to provide expatriates with an incentive wage for accepting the foreign assignment
Equal Pay Act (EPA) of 1963
An amendment to the Fair Labor Standards Act of 1938 that prohibits pay differentials on jobs that are substantially equal in terms of skills, efforts, responsibility, and working conditions, except when they are the result of bona fide seniority, merit, production-based systems, or any other job-related factor other than sex
professional
An employee who has specialized training of a scientific or intellectual nature and whose major duties do not entail the supervision of people
Compa-ratio
An index that helps assess how managers actually pay employees in relation to the midpoint of the pay range established for jobs. It estimates how well actual practices correspond to intended policy. Calculated as average rates actually paid divided by range midpoint
contingent workers compensation
As employment status is temporary and employee benefits are less or nonexistent, wages may be higher
Local country nationals (LCNs)
Citizens of a country in which a U.S. foreign subsidiary is located. LCNs' compensation is tied either to local wage rates or to the rates of U.S. expatriates performing the same job
valuation discrimination
Discrimination that focuses on the pay women and minorities receive for the work they perform. Discrimination occurs when members of these groups are paid less than white males for performing substantially equal work. This definition of pay discrimination is based on the standard of "equal pay for equal work." Many believe that this definition is limited and that valuation discrimination can also occur when men and women hold entirely different jobs (in content or results) that are of comparable worth to the employer. Existing federal laws do not support the "equal pay for work of comparable worth" standard
access discrimination
Discrimination that focuses on the staffing and allocation decisions made by employers. It denies particular jobs, promotions, or training opportunities to qualified women or minorities. This type of discrimination is illegal under Title VII of the Civil Rights Act of 1964
disparate treatment
Discrimination theory that outlaws the application of different standards to different classes of employees unless the standards can be shown to be business-related
disparate impact
Discrimination theory that outlaws the application of pay practices that may appear to be neutral but have a negative effect on females or minorities unless those practices can be shown to be business-related
Expatriates
Employees who are sent to work abroad on a long-term job assignment such as employees who need populate a new office or senior managers who need to manage or set up a new branch.
nonexempt employees
Employees who are subject to the provisions of the Fair Labor Standards Act
foreign service premium
Financial payments over and above regular base pay, typically ranging between 10% and 30% of base pay
two reasons given for communicating pay information
First, considerable resources went into designing an equitable system intended to attract/retain qualified people and motivate performance. Second, according to some research, employees seem to misunderstand the pay system
tariff agreements
In some European countries, the wage rates negotiated by employer associations and trade union federations for all wage earners for all companies in an industry group
exempt
Jobs not subject to provisions of the Fair Labor Standards Act with respect to minimum wage and overtime. Exempt employees include most executives, administrators, professionals, and outside sales representatives
Americans with Disabilities Act (ADA)
Legislation passed in 1990 that requires that reasonable accommodations be provided to permit employees with disabilities to perform the essential elements of a job
Age Discrimination in Employment Act (ADEA) of 1967 (amended 1978, 1986, and 1990)
Legislation that makes nonfederal employees age 40 and over a protected class relative to their treatment in pay, benefits, and other personnel actions. The 1990 amendment is called the Older Workers Benefit Protection Act
prevailing-wage laws
Legislation that provides for a government-defined prevailing wage as the minimum wage that must be paid for work done on covered government projects or purchases. In practice, these prevailing rates have been union rates paid in various geographic areas
geographic differentials
Local conditions that employees in a specific geographic area encounter, such as labor shortages and differences in housing costs
lifetime employment
Most prevalent in Japanese companies, the notion of employees' staying with the same company for their entire career, despite possible poor performance on the part of either an employee or the company
living wage
Pay legislation in some U.S. cities that requires wages well above the federal minimum wage. Often applies only to city government employees
green circle rates
Pay rate that is below the minimum rate for a job or pay range for a grade
red circle rates
Pay rates that are above the maximum rate for a job or pay range/pay grade
lump-sum award
Payment of entire increase (typically merit-based) at one time. Because amount is not factored into base pay, any benefits tied to base pay do not increase
Dual career ladders
Presence of two different ways to progress in an organization, each reflecting different types of contribution to the organization's mission. The managerial ladder ascends through increasing responsibility for supervision or direction of people. The professional track ascends through increasing contributions of a professional nature that do not mainly entail the supervision of employees
dual-career ladders
Presence of two different ways to progress in an organization, each reflecting different types of contribution to the organization's mission. The managerial ladder ascends through increasing responsibility for supervision or direction of people. The professional track ascends through increasing contributions of a professional nature that do not mainly entail the supervision of employees
cost of living increase
Same as across-the-board increase, except magnitude based on change in cost of living (e.g., as measured by the consumer price index [CPI])
merit increase guidelines
Specifications that tie pay increases to performance. They may take one of two forms: The simplest version specifies pay increases permissible for different levels of performance. More complex guidelines tie pay not only to performance but also to position in the pay range
global approach
Substitution of a particular skill and experience level for job descriptions in determining external market rates. Includes rates for all individuals who possess that skill.
turnover effect
The downward pressure on average wage that results from the replacement of high-wage-earning employees with workers earning a lower wage
spillover effecr
The fact that improvements obtained in unionized firms "spill over" to nonunion firms seeking ways to lessen workers' incentives for organizing a union.
Range Maximums
The maximum values to be paid for a job grade, representing the top value the organization places on the output of the work
range minimums
The minimum values to be paid for a job grade, representing the minimum value the organization places on the work. Often, rates below the minimum are used for trainees
planned pay level raise
The percentage increase in average pay that is planned to occur after considering such factors as anticipated rates of change in market data, changes in cost of living, the employer's ability to pay, and the efforts of turnover and promotions. This index may be used in top-down budgeting to control compensation costs
quarters allowance
This allowance is granted to an employee to help defray the annual cost of suitable, adequate living quarters for the employee and his/her family at a foreign post where government-leased or -owned housing is not provided
Mobility Premiums
Typically, lump-sum payments to reward employees for moving from one assignment to another
two tier pay plan
Wage structures that differentiate pay for the same jobs based on hiring date. A contract is negotiated that specifies that employees hired after a stated day will receive lower wages than their higher-seniority peers working on the same or similar jobs.
core employees vs. contingent
Workers with whom a long-term, full-time work relationship is anticipated contingent are part time
say on pay (shareholder votes)
a periodic process required by the law in which the shareholders of a firm can vote on the payment or remuneration of executives and general compensation policies - most of the time shareholders votes reveal that they agree with or support how executive are paid
labor union
an organized association of workers, often in a trade or profession, formed to protect and further their rights and interests.
Third-country nationals (TCNs)
are citizens of neither the employer's parent country nor the foreign country where they are living and working
Gainsharing plans
are designed to align workers and management in efforts to streamline operations and cut costs. • Success of these plans is dependent on a willingness to include union members in designing the plan
bonuses are designed to motivate
better short term performance
nearly every executive in private sector companies is covered by a
bonus plan, but they are become a smaller portion of executive pay
expatriate pay systems do
do emphasize maintaining employee purchasing power and minimizing disruptions and inequities. • But the lack of attention to alignment is glaring.
union effect on benefits
far exceeds the union effect on wages
large stakeholders can
influence executive pay
culture
is a shared mental programming rooted in the values, beliefs, and assumptions held in common by a group of people, which influences how information is processed
One concern with stock options is what?
is that they sometimes do not link as closely as desired to performance of the executive.
more on pay for knowledge plan
it pays employees more for learning a variety of different jobs or skills - organizations have greater flexibility in moving employees quickly - unions believe they make each individuals worker more valuable
a deferred wage increase is
negotiated at the time of initial contract negotiations with the timing and amount specified in the contract (reopener clause specified that wage and sometimes benefits and pensions as well)
Various tax and regulatory agencies require companies to place a value on
perks
three common measures of bonuses are
profit, revenue, and cash flow
Managerial autonomy
refers to the degree of discretion managers have to make total compensation a strategic tool
Dodd-Frank Act
requires that shareholders vote to approve or disapprove the compensation plan for its ____ highest paid executives - vote is nonbinding
Expat package or called Expat Pay
rewards and benefits for employees who move to another country to work
an explanation for the high executive pay involves what?
social comparison which is incorporated with agency theory
stakeholders can and so sue who?
sue directors over CEO pay/performance
Union Wage Premium
the degree to which union wages exceed non-union member wages
nominal wages
the literal amount of money you get paid per hour or by salary
performance rewards are
the most used long-term incentive program for executives
Purchasing power
the value of a currency expressed in terms of the number of goods or services that one unit of money can buy - how much in goods and services can be bought given net hourly pay and price level
Pay systems differ around the globe due to
variations in economic pressures, sociopolitical institutions, and diversity.
real wages
wages adjusted for inflation
with contingent workers
wages and benefits are lowers and productivity is higher
ERISA requires that a plan:
• Cover 80% of employees. • Provide determinable benefits. • Meet specific vesting and nondiscrimination requirements
Variations in five (5) factors are especially relevant in international pay
• Social contracts. • Cultures. • Trade unions. • Ownership and financial markets. • Managers' autonomy
profit sharing debate advantages
• The union's primary goal is to secure sound, stable income (wages and salaries) levels. • Saving and creating jobs is rapidly becoming the top priority. • The UAW agreed to greater profit sharing in lieu of wage increases
